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Central Banks in Transition

Change is in the wind for the leadership of the US Federal Reserve, where the bias is to raising interest rates if the economic data is too strong, and almost no chance to lower rates. This is after 9 years of accommodative monetary policy to dig out from the Global Financial Crisis. This bias towards raising interest rates began in early 2014 and has been the reason for a steadily stronger US dollar until recently. The US dollar finally stopped falling last week, gaining 0.2% compared to our basket of nine global currencies. Perhaps a sense of order is returning to the White House.

Their entire case for raising rates has been built on improving conditions in the US labour market where the pace of wage growth has not changed since 2010. Coming up on Thursday and Friday of this week is the PPI and CPI data for Jul-2017. A better than expected report is what Yellen and company want in order to justify the need for more rate increases along with a reduction in the holdings of US government debt accumulated since the Global Financial Crisis.

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